EADS deal could push out French executive
By Nicola Clark International Herald Tribune

Published: June 26, 2006
PARIS The two main industrial shareholders of EADS, the parent company of Airbus, have agreed in principle to streamline the management structure - potentially pushing out the embattled French co-chief executive, Nöel Forgeard, a person close to both companies said Monday.

But disagreements remain over who should hold the top leadership posts as the company scrambles to recover from the crisis triggered by delays to its A380.

Meanwhile, Airbus's chief salesman came under pressure in relation to the late deliveries of the 555-seat jetliner, which are to cost the company €2 billion, or $2.5 billion, over the next four years.

The German automotive group DaimlerChrysler and the French conglomerate Lagardère agreed over the weekend that European Aeronautic Defense & Space, based in Munich, should abandon its dual, French-German management in favor of a single chairman and a chief executive, said the person, who requested anonymity because the negotiations were continuing.

Under such a structure, Thomas Enders, the company's current German co-chief executive, would most likely assume responsibility for the day-to- day management of EADS, while his French counterpart, Forgeard, would probably step down, this person said.

Forgeard, 59, has come under pressure to resign after an announcement June 13 that Airbus was postponing deliveries of the flagship A380 by as many as seven months. French market regulators are investigating whether Forgeard was privy to inside information when he and three of his children sold several million euros worth of EADS shares in March.

While the issue of the EADS chief executive appears to be more or less resolved, deep divisions remain among the company's largest shareholders over the company's chairmanship. DaimlerChrysler and Lagardère have agreed that this position could be held by a French national, said the person close to the two companies.

However, this person said the French government has expressed a preference that the post be held not by Arnaud Lagardère, the company's current French co-chairman, but by Louis Gallois, an EADS board member who heads the French state-owned railway, SNCF.

Gallois, 62, currently represents the interests of the French government, which owns 15 percent of EADS. Thierry Breton, the French finance minister, said last weekend that the government was seeking a solution to the EADS crisis - by Tuesday - that would give Paris a greater say in the company's management.

Lagardère halved its stake in the company to 7.5 percent in April, making the French government the largest single French shareholder in EADS.

"Things have gotten a bit difficult when it comes to talking about people" who would be suitable for the EADS chairmanship, the person said.

The proposed restructuring would place Lagardère in the awkward position of having to step aside as chairman of EADS - a position he inherited from his late father, Jean-Luc - despite not having been accused of mismanagement or wrongdoing.

Manfred Bischoff, the company's German co-chairman, is said to be willing to step down. He is due to assume the post of chairman of DaimlerChrysler sometime next year.

EADS and the French Finance Ministry declined to comment on the negotiations. Press officers for DaimlerChrysler and Arnaud Lagardère did not return phone calls seeking comment.

Forgeard is likely to keep his position as chairman of Airbus for the time being, this person said. But the post is expected to be eliminated once the British defense company BAE Systems, which owns the other 20 percent of Airbus, disposes of its stake this summer.

President Jacques Chirac of France acknowledged on Monday that the management structure at EADS was flawed.

"There is one problem, which is the difficulty in management that EADS has experienced with its two chairmen and two chief executives," Chirac said in a television interview. "It's likely that something has to be done and that something will be done."

Breton, the French finance minister, again urged EADS on Monday to take action to resolve the management crisis.

"The responsibility of the company is to take measures to solve the problems" and to look into the need of "improving the management chain," Breton said.

A German government spokesman, Ulrich Wilhelm, said that Berlin saw no need to change the current management structure at the group "in terms of the balance between Germany and France."

The high-level negotiations at EADS came amid a report in Germany's leading news magazine, Der Spiegel, that John Leahy, the commercial director of Airbus, had promised airlines that they could make late changes to the cabin design of the A380s they had ordered, even though the plane's configuration had already been completed.

Citing an unidentified Airbus official in Hamburg, the report said the electrical division of Airbus had to develop or order new cabling to meet those new customer requests. That process contributed to the delays in the delivery schedule. (Page 11)

In an interview Monday, Leahy dismissed the suggestion that late customer modifications were to blame for the A380's delays. "The customers are not at all responsible," Leahy said.

All 16 customers for the A380 submitted their final design requests "on time," Leahy said, adding that the deadline for any changes was set "years in advance."

"The lead times were probably longer than most customers were happy with, but all of them complied," he said.

The German magazine also cited an internal memo from Leahy on Nov. 10, which it said had pressed Airbus engineers to make the A380 modifications as quickly as possible.

In the interview, Leahy said the November memo, which focused on improving Airbus's marketing with airlines, never referred to the A380 program. "The letter on Nov. 10 had absolutely nothing to do with that," Leahy said.

PARIS The two main industrial shareholders of EADS, the parent company of Airbus, have agreed in principle to streamline the management structure - potentially pushing out the embattled French co-chief executive, Nöel Forgeard, a person close to both companies said Monday.

But disagreements remain over who should hold the top leadership posts as the company scrambles to recover from the crisis triggered by delays to its A380.

Meanwhile, Airbus's chief salesman came under pressure in relation to the late deliveries of the 555-seat jetliner, which are to cost the company €2 billion, or $2.5 billion, over the next four years.

The German automotive group DaimlerChrysler and the French conglomerate Lagardère agreed over the weekend that European Aeronautic Defense & Space, based in Munich, should abandon its dual, French-German management in favor of a single chairman and a chief executive, said the person, who requested anonymity because the negotiations were continuing.

Under such a structure, Thomas Enders, the company's current German co-chief executive, would most likely assume responsibility for the day-to- day management of EADS, while his French counterpart, Forgeard, would probably step down, this person said.

You can claim that Chirac is heavily corrupt and few will deny this. However Forgeard has not ever been charged nor convincingly suspected of it. In particular based on the minutes from the latest EADS board meeting it seems like he did not benefit from any insider information.

PS: the meeting transcript was published today by french newspaper lemonde.fr but I can't find it anymore -sorry.

Quoting Glacote (Reply 6):Regarding his relatives selling at the same time he told the press that he had passed the order himself on their behalf.

That doesn't really explain much. One of the reasons that execs sell their company stock is to diversify their holdings. Why would he initiate a transaction on his relatives' stock? Are they minors? And how much of their holdings were sold off?

Quoting Atmx2000 (Reply 7):Why would he initiate a transaction on his relatives' stock? Are they minors? And how much of their holdings were sold off?

As far as I recall, during March Forgeard's wife sold off about E600,000 worth of shares which were 'donated by N. Forgeard'. Forgeard's three children sold off about E4.0M.-worth between them. Forgeard purchased a block of optioned shares for about E2.5M. and immediately sold them for about E5.0M.

So the gross value of the family's sales during March 2006 was about E10M.. More details on the EADS website - click on 'Corporate Governance', then 'Insider Trading Rules', then 'Directors' Dealings').

"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci

Quoting Elvis777 (Thread starter):PARIS The two main industrial shareholders of EADS, the parent company of Airbus, have agreed in principle to streamline the management structure - potentially pushing out the embattled French co-chief executive, Nöel Forgeard, a person close to both companies said Monday.

I personally hope that this true. Forgeard should retire and write his memoirs, or go on the speaking circuit, if anyone will have him. Or both. Actually, he should make a pretty penny with speaking engagements alone. If he steps down, I will hardly feel sorry for him.

Quoting NAV20 (Reply 8):As far as I recall, during March Forgeard's wife sold off about E600,000 worth of shares which were 'donated by N. Forgeard'. Forgeard's three children sold off about E4.0M.-worth between them. Forgeard purchased a block of optioned shares for about E2.5M. and immediately sold them for about E5.0M.

If Forgeard was aware of problems with the A380 through the grapevine, I wonder if he thought that information would take much longer to filter up to other top level execs at EADS and Airbus and be announced in public. Because if he knew there were problems and if he knew it would come out soon, he would have to know that it would look suspicious to the authorities that he executed these trades. If he knew there were problems and thought that they would take many months to appear in public, then he might have thought he could get away with selling stock.

Quoting Atmx2000 (Reply 10):If he knew there were problems and thought that they would take many months to appear in public,

Thing is - knowing of developing problems and not telling the shareholders and the market (or, worse, telling them the direct opposite, that everything's fine) is a criminal offence in most countries.

Atmx2000, besides Forgeard, four or five other EADS directors also exercised options 'for immediate sale' during March. This was only a week or two before the Lagardere/Daimler-Chrysler sell-offs (which were almost guaranteed to depress EADS share prices, at least temporarily) were announced. In that connection, almost all EADS directors and board members have close connections with Lagardere and/or Daimler-Chrysler, whe effectively appoint them.

From the (common-sense) viewpoint of 'the man on the Clapham omnibus,' I'd say that it's a pound to a penny that they knew about the upcoming selloffs, and that's why they sold shares themselves before the news broke publicly.

It remains to be seen what a jury will say, if it gets that far.

"Once you have flown, you will walk the earth with your eyes turned skywards.." - Leonardo da Vinci

It occurs to me that one solution to the problem of insider trading in general might be a rule requiring that the proceeds of all stock sales by any corporate insider relating to the company or companies as to which he is an insider must be strictly held in escrow for a significant period (say, 12 months) before distribution of proceeds. The rule would also expressly prevent any collateralization or other hypothecation of the proceeds before the expiration of the specified period. So, for example, if the insider were to sell his stock on June 27, 2006, the sale would be considered as of that date, but the proceeds would be held in escrow by a third party and distributed no earlier than June 27, 2007, and the insider would have no legal ability to, for example, borrow against those funds before then. The record date for all purposes except distribution of proceeds would be June 26, 2006, the date of sale. The disadvantage to this is that the insider would not have the use of those proceeds before the 12 months is up. The up side, however, is that the imposition of a 12 month delay would tend to (1) prevent insiders from acting on any inside knowledge before the rest of the market has had time to react; (2) insulate the insider from allegations of insider trading, since he would be less likely to be able to predict events that would occur 12 months in the future, and therefore act upon them, than he would concerning more immediate events; and (3) permit other shareholders or investigators to vet such sales (by regular means of financial and other scrutiny) in the 12 months before the time the proceeds are distributed. The solution would not be foolproof, but it might be better than nothing.

In the foregoing, a bona fide purchaser for value of the stock would be considered to be the purchaser and holder of the stock he purchased from the insider-seller as of the date of sale, June 27, 2006 (assuming that the sale was consummated on that date), despite the fact that the price he paid would not be made available the insider-seller until June 27, 2007.

Quoting NAV20 (Reply 11):Thing is - knowing of developing problems and not telling the shareholders and the market (or, worse, telling them the direct opposite, that everything's fine) is a criminal offence in most countries.

Of course. But I'm suggesting that Forgeard got information through some other channel, not through the EADS and Airbus hierarchy.

Quoting Atmx2000 (Reply 13):But I'm suggesting that Forgeard got information through some other channel, not through the EADS and Airbus hierarchy.

Could be, Atmx2000. Perhaps he just happened to get his shoes shined on the way to the office one day in March, Like Joe Kennedy in 1929.

For anyone that doesn't know it, this is the story:-

"Joseph P. Kennedy was heavily invested in the booming stock market of the 1920s, until, legend has it, he went to Wall Street to visit his broker, JP Morgan, about a week before the great crash of 1929. On his way, he supposedly stopped to have his shoes shined. While doing so, he asked the shoeshine boy for the news on the street. The boy, named Billy, suggested that he buy US Steels and RCA stocks because he had "heard they are hot." Shoes sparkling, Kennedy then continued on to JP Morgan's offices, where he liquidated all his holdings. Returning home, his wife asked him what he bought. "I sold everything," he said. "When the shoeshine boy starts giving you tips, it is time to get out of the market." The Kennedy dynasty was preserved from financial ruin, and Joe's son, John, would go on to become U.S. president."

Quoting Atmx2000 (Reply 10):If Forgeard was aware of problems with the A380 through the grapevine

FWIW I don't buy the "executives didn't know" routine in a big company like that. Whether they knew "officially" might be a different matter, but "unofficially" they're bound to have been aware that something was potentially amiss (big company grapevine is a powerful thing).

(in fact if you look at EADS 1st 1/4 financial summary, it states that there was an ongoing investigation into the issue. If it's big enough to make the financial SUMMARY, you can bet you're ass it was a reporting agenda line item ).

I have seen in my own business a culture where "bad news" is "not acceptable", i.e. the bad news was given, but essentially ignored, with a rather threatening "go fix it" message.

We ALL KNEW what was wrong - the customer reps ALL KNEW what was wrong (ah, yes, the laughable one-on-ones with customer reps - "so when are you gonna tell us about the delay - we've got a sweep going - 2 1/2 years is favourite so far...... ), and don't be fooled - the BOARD KNEW what was wrong. Unfortunately they had backed themselves into a corner where anything "off-message" was not tolerated.
We ended up with essentially a new board, a 3 year delay agreed with the customer, and a culture of "we want to know everything, good or bad" (as it should, of course be, and the customer in fact demanded).

Perhaps I'm being unfair? Maybe, but when you've seen it close up, it engenders a certain cynicism.